Michael H. Karu, CPA/CFF, Member, was highlighted on NJ.com where he answered the question “I just got a raise and I want to lower my tax bill. I haven’t contributed much to my 401(k). Can I max it out before the end of the year or am I limited because I was only contributing 2% of my paycheck until now?”
Most 401k plans require a set dollar amount or percentage be withheld from the participant’s paycheck prior to the start of the year. In light of a salary increase, contribution adjustments may be made based on what’s permitted in a participant’s 401k plan. Karu provided valuable insight into a contribution benefit termed ‘true-up’ that allows the participant to increase or decrease their contribution.
A true-up ensures that employees who did not contribute to the desired level or contributed too much, can adjust their contribution to the desired level. Since many employers match a portion of their employees’ contributions, a true-up allows employees to receive a higher match than if a true-up hadn’t occurred.
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